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King Conglomeration Is Dead! Long Live Anti-conglomerate King…Diller?

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Barry Diller, the IAC overlord who has spent years attempting to sell the world on the idea of an internet conglomerate, now admits that conglomeration was a bad idea from the start.
In a long profile by Duff McDonald (who is possibly the best business profile writer working today) in the new issue of Portfolio, Diller says: “We were kidding ourselves if we thought we could pull off an integrated conglomerate that acts like G.E. or P&G in anything less than 10, 20, or 30 years.” His plans now include “blowing up IAC and leaving the company’s disparate parts to operate on their own,” according to the Duffster.
Although the tech-oriented Web 2.0 kids are likely to herald this as a triumph for independent, niche, small-is-wonderful tech companies with important lessons for deals such as Electronic Art’s proposed acquisition of Take-Two software, we can’t help but be struck by how much of the failure of IAC is part of the much larger mortgage story. IAC bought online mortgage middleman Lending Tree, familiar to many of our readers from its once ubiquitous ads on CNBC, for $726 million in 2003. Last year, IAC wrote down the value of LendingTree by $475.7 million. With the mortgage market still face-down and floating in the seas of plummeting real estate prices and tight credit, there’s likely to be even further write downs. For a company with under $13 billion in total assets, that’s an enormous amount to lose on single asset.
Of course, we can’t help but wonder if the proposal to slip of IAC and Diller’s newfound love affair with “anti-conglomeration” isn’t a contrary indicator. If Diller is short, is that a signal to go long conglomeration? That’s one way to read the position of Liberty Media, the Malone family controlled corporation which owns 62 percent of the voting power in IAC and is locked in litigation with Diller to prevent the break-up of the company. Of course, Liberty Media’s stock performance pretty much tracks IAC’s—both have consistently underperformed almost any broad stock index you can name—so we’re not sure we’d want to follow their lead on anything.
The Confessions of Barry Diller [Portfolio]



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